AFGHANISTAN – SHARIA BASED FINANCIAL PRODUCTS

Evidence to date since the inception of Microfinance Institutions (MFIs) in Afghanistan points to a friction at a fundamental level between traditional value sets on money lending and borrowing and the business requirements that need to be adhered to by MFIs. The often absolute denunciation of paying interest on loans by many interpreters of Sharia principles in various parts of Afghanistan has sometimes led to strong opposition and open protest by some community members and condoned by religious figures. These developments point to a need for a better understanding of the basis for the objections to microfinance, particularly microcredit, to establish whether there is a need to respond to these objections through developing new financial products in conformance with the Sharia principles. Riba, or interest earnings from lending money, are viewed in Islam as haram, or sinful. While modern interpretations of riba tend to be more flexible and allow for certain forms of reward or appreciation for the lender providing the loan, to many lay Muslims all interest is riba and therefore no money should be lent or borrowed for interest. Research on Islamic banking suggests that the higher the religious commitment and the lower the level of general education, the stronger the preference for Islamic over conventional financial products. While there is a general preference by Muslim customers for Sharia-based financial products, there is insufficient awareness as to the differences between Sharia-based and conventional financial products.